Third-party inspection certificates — reducing the risk of international sales

By Nicholas Walser

For anyone purchasing goods of any kind, the most important question is: ‘Am I getting the product that I have agreed to pay for?’ No buyer wants to part with the price and then find that they have bought something that is of poor quality or unsuitable for its intended purpose.

In international sales, where the buyer and seller may be on opposite sides of the world, having the right to claim a refund later may be of little practical use to the buyer, and they cannot easily go and check the quality of the goods in person either. International purchase contracts should therefore stipulate that the price is payable on sight of an inspection certificate issued at the point of shipment by an independent third-party inspection agency. Where payment is made by letter of credit, these certificates are also usually included in the documents that must be presented to the buyer’s bank in exchange for payment.

This is an important protection for the buyer. But an inspection certificate may also protect the seller against any liability if the buyer later discovers that something is wrong with the goods. If the contract provides for payment on sight of an inspection certificate, it may also state that the certificate is to be final and binding. In other words, if the seller produces a valid certificate confirming that the goods meet the agreed specifications, this is conclusive and the seller has no further responsibility. There are ways for buyers to get round this problem but it depends on the precise terms of the contract, and of the certificate itself. For example, if the certificate is to be ‘final as to quality’ it may not protect the seller if they have supplied goods of the wrong description. Or if the contract requires the goods to be tested using a particular test method, the certificate will not be binding if the wrong method has been used. Both of these arguments have been upheld in the past by the English courts…

Click on the link below to read the rest of the Gateley briefing.

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